The only major tax incentive scheme proposed by the government in last month’s budget is set to be vetoed by the European Commission.

European officials have told the government that its tax proposal aimed at regenerating docklands areas will not pass EU state aid rules and will not be sanctioned.

The government had said it would introduce tax reliefs to facilitate the relocation of certain industrial facilities that hinder the regeneration of docklands areas in urban areas.

The facilities in question carry restrictions under the EU’s Seveso Directive and include a number of sites in Cork, where there are proposals for a major regeneration project.

The Minister for Finance, Brian Lenihan, said in his budget speech last month that the proposal was subject to EU clearance ‘‘froma state aid perspective’’.

Discussions between the Irish government and EU officials have taken place in recent weeks.

The European Commission told the government that the plan would not pass EU state aid rules because of the ‘polluter pays’ principle, a European policy which ensures that an industry which creates pollution must pay the clean-up cost of the property.

This weekend the government is trying to rework the proposals in an effort to get some form of incentive passed in Europe.

Two private companies with sites in the Cork docklands were in line to benefit from the tax incentive if it went ahead.

Goulding Fertilisers, which is owned by IAWS, and Topaz, the oil and fuel distributor backed by Ion Equity and Denis O’Brien, both have facilities in the Cork docklands which carry restrictions under the Seveso directive.